Tanzanai's central bank keen to control banks' bad debts

The Bank of Tanzania (BoT) wants non-performing loans (NPLs) in commercial banks to go down to comfortable zone of 5.0 per cent for purposes of protecting depositors’ money.

The central bank said though the level is around 7.0 per cent, the risk level is, however, lower compared to other countries in the East African Community (EAC).

The average rate in the EAC bloc rate is 8.0 per cent. BoT’s Director of Banking Supervision, Mr Agapiti Kobelo, said the country’s loan risk is relatively good compared to others in the region, but has to go down to benchmark.

“(However), we are fighting to bring down the ratio to five per cent,” Mr Kobelo told “Daily News” on Wednesday, “This is comfortable level.”

The Director added: “but some individual bank’s NPLs are around two per cent--the 7per cent level means if you have 100m/- in loans only 7m/- are bad loans--and this money is not lost yet.”

The directorate of banking supervision meets regularly with individual banks which have higher NPLs to discuss and advise them on the way to go to arrest the trend. Tanzania has 54 banks.

A monetary policy statement issued by BoT recently shows that the current NPLs ratio to gross loans of 7.0 per cent is the lowest since 2013’s last quarter of 6.7 per cent.

The Director said between 2008 and 2010 during the world financial crisis the level sunk to the lowest ever level of 17 per cent through efforts championed by the central bank.

The report shows that despite the NPLs being above the threshold, the banking sector remained strong and sound with adequate liquidity and capital above regulatory requirements.

“However,” the repot said, “there was a slight deterioration in loan quality, which affected the ratio of gross non-performing loans (NPLs) to gross loans”.

This was partly evidenced by annual increase in the level of deposits, which almost doubled, from 1.09tro/- in November 2013 to 2.17tri/- in November 2014.

The latest Central Bank of Kenya (CBK) data shows that NPLs rose by 30.9 per cent last year to Sh107.1 billion in December -- the highest in six years. In Uganda NPLs to total gross loans ratio increased from 4.0 per cent to 5.8 per cent between June 2013 and June 2014.

Burundi recorded the highest levels of NPLs in the region last year, at 12.7 per cent. While Rwanda NPLs improved from 6.9 per cent by end of December 2013 to 6 per cent by end of 2014.